The other datapoint that is really suspect right now about gold are lease rates. The one to six months closed this week at 0.84 to 0.87%. Again no recognition of the systemic credit deterioration of the counterparty clowns that borrow the yellow dog. When the BAC news hit you would have expected lease rates to spike (their commercial paper did). A prudent lender of gold would demand the same from a credit instrument such as a gold lease. But no, it just sat there quietly (lah de dah). Another suspect datapoint to ask yourself, have you noticed how slowly the hot air is being let out of the big financial stocks? Terrible news and they are down maybe 4%. Can't allow any of these 50% in one day tech-like poundings there can you Rubin and Easy Al?
Why are POG and credit creation gold lease instruments (and stocks like BAC) immune from the extreme volatility seen now in other markets? It is obvious: the U.S Treasury and/or surrogates (IMF, UK) are ramping the market. Gold has to stay down (for shorts and borrowers: they're in trouble now)because it is used as a basis for massive carry trades. What needs to happen to clear the deck and end this madness is for one of these big gold borrowers to fail. Candidates anyone? The other possibility is that one of the lessors blinks and decides not to play this game. Candidates for that are France, Germany, Middle East countries. May already be happening, so that puts even more pressure on the US and their yellow dog lackies to stem the bleeding. A final question about the sustainability of the ramp job is what happens when the Bush people show up and see all the party hats, empty beer bottles and toilets ripped off the walls in the PPT room? Read Lawrence Lindsay's book for clues.
The 64K question for gold bulls now is can the moral hazard proponents and expediency crowd stem the tide (it's going to be much bigger than LTCM this time), or is this the "perfect storm"? Whatever the answer, don't be fooled by this "quiet" action in gold.
Finally, on the California (and whole west coast) utility crisis: expect big federal bailout and in effect a "temporary" nationalization. Just more moral hazard ahead. Got to do it fast before Bush gets in, as Californians are good Democrats. |
